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Sales of Microsoft's smartphone operating system are lagging and Redmond needs to step things up to win third place, Steve Ballmer has said.

Yes, that's right: not first, or even second... Ballmer is aiming for third.

Microsoft's chief executive broke the news of disappointing sales and his strike for the bronze medal during his company's annual Financial Analyst Meeting (FAM) on Wednesday.

FAM was held in Anaheim, California, during the shadow of Microsoft's BUILD Conference.

Ballmer told Wall St investors: "We haven't sold quite as many probably as I would have hoped we would have sold in the first year."

He remains typically positive about Microsoft's chances and reckons Microsoft's got what it takes to become a "very strong third ecosystem" in the smart phone world.

That would presumably mean being second to Apple with the iPhone and Google's Android.

However, Microsoft's people need to step up their efforts selling Windows Phone 7 to what Ballmer reckons are a public ready and waiting for Redmond's smartphone.

"I won't say I'm not saying I love where we are, but I'm very optimistic to where I think we can be," Ballmer said. "I think with a little bit more effort, a little bit more energy, the level of enthusiasm from the customer base is high enough we've just got to kick this thing to the next level. And I think we're in absolute good shape in order to be a very strong third ecosystem in the smart phone world.

This is the first indication from Microsoft how sales of Windows Phone 7 have gone in the 19 months since it was released.

Tellingly, Microsoft has not broken out any financials on Windows Phone 7 sales. Nor has Microsoft been bragging about having hit millions of units shipped or licences sold, something it has done in the past with new versions of Windows to prove the new software's unbridled success.

Earlier this summer, number-crunching analyst IDC pulled back a little on its initial all-out love for Windows Phone. On 30 March, just over a month after Nokia and Microsoft announced their historic tie-up, IDC reckoned something called "Windows Phone 7/Windows Mobile" would hit 20.9 per cent market share by 2015. In June, IDC scaled back a tad to 20.3 per cent and qualifying its earlier enthusiasm as a theoretical construct based on Nokia's past performance. IDC said Nokia would first have to get its manufacturing production up to full steam before it can hit the magic number.

Ballmer reckoned Wednesday that relationship with Nokia, who'll ship nothing but Windows Phone 7 on its phones, will play in Microsoft's favor. Nokia's expected to put the first out the first trickle of Windows-Phone smart phones in the fourth quarter of this year following the sliding handset giant's commitment to monogamy with Redmond earlier this year.

Google's Motorola purchase will unsettle handset makers using Android who compete against Motorola, given Google in the past talked of giving Motorola early access to Android code.

On Nokia, Microsoft, like IDC, is betting on Nokia for volume production and shipment. However, Nokia's market-share was sliding south before the companies' deal. All that has changed is the operating system that Nokia phones will run; it is an operating system that's still relatively unproven and unknown among most of the phone-buying public.

Nokia, meanwhile, is actually cutting off one it its routes to market. Chief executive Steven Elop, a former Microsoft executive, is reported to have decided Nokia phones in the US will only be available ready locked into carriers' networks and that unlocked phones that let you – the consumer – pick the network you want will no longer be sold.

The strategy is clearly designed to win over skeptical carriers to Windows Phones, as it'll let them stuff even bigger and more expensive data plans down consumers throats.

In painting a rosy prospect of the future at FAM, meanwhile, Ballmer also talked of "intellectual opportunities". Ballmer didn't elaborate further, but if he's talking "Intellectual Property" then he seems to be suggesting that one way Microsoft can make money and win market share is by continuing to nail makers of Android phones for claimed violations of Microsoft patents.

In doing this, Microsoft can potentially have hardware makers like HTC end up selling Windows Phone in addition to Android.

Since HTC, Microsoft has been hitting Android-device makers one after another over claimed violations and has been signing them to patent protection and licensing deals as a result. Since June, we've had General Dynamics Itronix and Velocity Micro on the device side and Onkyo Corp in home entertainment. It will be interesting to see which, if any, end up selling Windows Phone machines along with Android, as well as who Microsoft will target next. ®